Break-Even Point on the Chase Sapphire Reserve Card
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Choosing the best travel rewards credit cards to carry in your wallet can be a challenging task. The Chase Sapphire Reserve is undoubtedly one of the best travel rewards credit cards, but you may be wondering whether it makes financial sense to add the Sapphire Reserve to your wallet. To this point, this post provides an analytical look at when it makes sense to get the Chase Sapphire Reserve.
This analysis will look at two different angles. The first will compare the Sapphire Reserve to the Chase Sapphire Preferred Card, a similar card with slightly less-rewarding bonus categories but a significantly lower annual fee. The second angle will simply look at overall spending on the Sapphire Reserve by itself. I’ve recommended the Sapphire Reserve to many friends and family members who aren’t points and miles enthusiasts, so this portion of the post will simply look at how much you’d need to spend on the card each year to cover the annual fee.
A couple of additional notes. For starters, this analysis is looking solely at the return you’d get through spending rather than other perks on the card (like Priority Pass lounge access). This can be a nice benefit, but since every traveler would utilize this differently, it’s impossible to peg an exact value on it. In addition, I’ll be basing my calculations off TPG’s most recent valuations, which peg Ultimate Rewards points at 2 cents apiece.
Finally, I won’t be using the published annual fee ($450) on the Sapphire Reserve. As you’re hopefully aware, this card offers an annual $300 travel credit that is automatically (and instantly) applied to eligible purchases. Fortunately, Chase uses a very wide definition for travel, including merchants like Uber, Airbnb and even parking lots and garages. Here’s the full list, as published on Chase’s website:
“Merchants in the travel category include airlines, hotels, motels, timeshares, car rental agencies, cruise lines, travel agencies, discount travel sites, campgrounds and operators of passenger trains, buses, taxis, limousines, ferries, toll bridges and highways, and parking lots and garages.”
I’d venture a guess that just about everyone reading this post spends at least $300 per year on these purchases, so my analysis will consider the “effective” annual fee as $150.
Let’s get started!
Break-Even Calculation – Part 1
As I mentioned above, the first part of this analysis will compare the Chase Sapphire Reserve to the Chase Sapphire Preferred. In order to complete this portion of the analysis, it’s necessary to calculate a break-even point between the two cards as it relates to the rewards earned from spending on each card. The Sapphire Reserve carries a higher annual fee but also awards additional bonus points for travel and dining purchases. Given the Sapphire Reserve’s travel credit discussed earlier, I’ll use the following annual fee numbers for this calculation:
- Sapphire Reserve: $450 – $300 = $150
- Sapphire Preferred: $95
This leaves you a difference of $55, so the calculations that follow will thus identify when the additional points you’d earn would cover the additional fee you’d have to pay each year.
As I mentioned above, the Chase Sapphire Reserve provides higher bonuses for certain purchases. You’ll earn 3x points on travel worldwide (excluding purchases covered by the $300 travel credit) along with 3x points on dining at restaurants worldwide. The Chase Sapphire Preferred Card, on the other hand, only awards 2x points for both of these categories. This means that for every dollar you spend on travel or dining out with the Sapphire Reserve, you’re getting an additional 2 cents of value.
From here, the calculation is relatively straightforward:
Additional Annual Fee on Sapphire Reserve: $55
Value of points not earned due to Sapphire Reserve travel credit: $18
Value of additional points earned with Sapphire Reserve: 2 cents
Calculation: ($55 + $18) / $0.02 = $3,650
This means that if you spend at least $3,650 on travel and dining purchases in a year, you’re better off going with the Sapphire Reserve. This breaks out to just $304 per month.
Here are the calculations that “prove” this to be true:
$3,650 x 2 points per dollar = 7,300 Ultimate Rewards points
7,300 x 2 cents = $146
($3,650 – $300) x 3 points per dollar = 10,050 Ultimate Rewards points
10,050 x 2 cents = $201
At this spending level, the additional 2,750 Ultimate Rewards points you’d earn on the Sapphire Reserve will exactly cover the additional $55 annual fee. Note that these calculations hold regardless of whether you maximize the value of your Chase Ultimate Rewards points by transferring them or simply book travel through the Ultimate Rewards travel portal.
Break-Even Calculation – Part 2
The second part of the analysis will consider the difference between the Chase Sapphire Reserve and no card at all. This card actually makes sense for almost anyone out there given the multitude of ways to redeem Ultimate Reward points (including transferring them to partners like Hyatt and United). Unfortunately, this is a bit more complicated, simply because it entirely depends on how much you spend in each purchase category. As a result, I’ll split this further and look at how much you need to spend in both the bonus and non-bonus categories alone to cover the $150 effective annual fee. I’ll also consider two different valuations for Ultimate Rewards points: 2 cents apiece (based on TPG’s most recent valuations) and 1.5 cents apiece (based on the value you’d get when redeeming them directly for travel).
Here are the calculations:
Travel and Dining (TPG):
Points earned per dollar: 3
Value per point: 2 cents
Total rewards per dollar spent: 6 cents
$150 / $0.06 = $2,500
The Sapphire Reserve’s annual travel credit provides statement credits for $300 of travel expenses each year, but you won’t earn Ultimate Rewards points on these purchases. So, if you spend $2,500 + $300 = $2,800 per year on travel and dining, you’ve already earned enough Ultimate Rewards points to cover the $150 effective annual fee. This works out to just $233 per month.
Travel and Dining (direct redemption):
Points earned per dollar: 3
Value per point: 1.5 cents
Total rewards per dollar spent: 4.5 cents
$150 / $0.045 = $3,333
Even at the low end of the spectrum, you won’t need to spend a ton of money in this category to cover the $150 effective annual fee, just $3,333 + $300 = $3,633. This comes out to $303 per month.
Non-bonus spending (TPG):
Points earned per dollar: 1
Value per dollar spent: 2 cents
$150 / $0.02 = $7,500
Utilizing TPG’s valuation, you’d need to spend $7,500 on the Sapphire Reserve on purchases outside the travel and dining categories to cover the $150 effective annual fee, which works out to roughly $625 per month. Plus, you’d still need to spend $300 in travel purchases annually to take full advantage of the $300 travel credit.
Non-bonus spending (direct redemption):
Points earned per dollar: 1
Value per dollar spent: 1.5 cents
$150 / $0.015 = $10,000
When you utilize the value of points when redeemed directly for travel, you’d need to spend an even $10,000 per year (or $833 per month) in non-bonus categories to cover the $150 effective fee.
As you can see, the Chase Sapphire Reserve can make sense for a wide variety of readers. You may be a seasoned veteran when it comes to points and miles and don’t think twice about applying for a card with a $450 published annual fee. However, even if you’re brand new to this hobby, this card can be incredibly rewarding (especially when you factor in the 50,000-point sign-up bonus after spending $4,000 in the first three months and all of the other perks excluded from the above analysis). Hopefully this post has shed some light on just how little you’d need to spend to come out ahead on the Sapphire Reserve.
Official application link: Chase Sapphire Reserve with a 50,000-point bonus.
Featured photo by Isabelle Raphael/The Points Guy.